A long-simmering fight among Republicans will burst onto the public stage Tuesday when the Senate votes on eliminating government subsidies for ethanol producers — the first skirmish in what is expected to be a much bigger war over tax breaks, carve-outs and other taxpayer funding that boosts U.S. businesses and can fund American jobs.
Ethanol, which thanks to government mandates has become a standard auto fuel additive, is just one target for the free-market rebellion. A potentially bigger fight is brewing in the House over a bill that some Republicans are pushing to subsidize vehicles’ conversion to using natural gas, which would be a huge boon for domestic energy producers, though opponents say it could cost taxpayers up to $64,000 per commercial truck.
At stake are competing views within the Republican Party over the extent of government authority: business-oriented Republicans who say power should be used to correct markets and support key industries, and free-market conservatives who argue that government can’t pick winners and losers and that the party needs to reject the federal expansion that took place when Republicans controlled Congress and the White House under President George W. Bush.
“I think it’s a defining moment for them, I really do,” said Tim Phillips, president of the powerful limited-government lobby group Americans for Prosperity, going on to warn the Republicans against backsliding.
“We look at the early 2000s, a time when that party almost literally destroyed its brand. It started with earmarks and small giveaways and it progressed to bigger things, and I think most people would agree it culminated in that Medicare prescription drug disaster,” he said.
Momentum has been growing for a major re-evaluation of tax policies, and got a big boost last year when President Obama’s deficit commission called for trimming tax credits and splitting the extra money between lowering tax rates and funding government spending.
The issue has even been elevated to the 2012 presidential campaign, where some Republican candidates have called for cuts to corporate subsidies, including ethanol, which has been sacrosanct, thanks in large part to Iowa’s position as host of the first-in-the-nation nominating caucuses.
Tuesday’s battle will be over legislation sponsored by Sen. Tom Coburn, Oklahoma Republican, that would end the tax credit of 45 cents for every gallon of ethanol that is blended into gasoline. Mr. Coburn has used parliamentary tactics to force a vote, but will need to get 60 senators’ support to head off a filibuster.
“The days of placing spending programs in the tax code and giving them holy status are over,” Mr. Coburn said. “Using the tax code to pick winners and losers kills economic growth and job creation.”
But Sen. Charles E. Grassley, Iowa Republican, defended the ethanol credit as an equalizer for an American source of energy that supports thousands of jobs here.
“The incentive exists to help the producers of ethanol compete with the oil industry. And remember, the oil industry has been well supported by the federal Treasury for more than a century,” Mr. Grassley said, pointing to a government study that found the oil industry received more than $100 billion in taxpayer subsidies between 1968 and 2000.
Some are comparing the ethanol vote to the October 2005 Senate vote on Alaska’s so-called “bridge to nowhere,” which was the canary in the coal mine for earmark spending. That first vote to halt the bridge failed by a 82-15 margin, but soon thereafter specific funding for the project was withdrawn. By this year, Congress had imposed a temporary ban on all spending earmarks.
The bigger subsidy battle, though, is happening behind the scenes in the House, over a bill — known by its legislative designation as H.R. 1380 — to subsidize the transition of trucks from diesel fuel to natural gas.
Pushed by billionaire businessman T. Boone Pickens, the legislation would offer tax credit incentives to get consumers, truck-fleet operators and fuel stations to choose natural gas.
Mr. Pickens has pitched the bill in speeches and columns, arguing that tax credits mean people keep their money and it will help control government spending. The bill, sponsored by Rep. John Sullivan, Oklahoma Republican, initially attracted huge support: Nearly 200 lawmakers signed on board.
Since then though, free-market groups have fought back, arguing the government shouldn’t pick one energy supply over another. Last week, Mr. Phillips’ group, Americans for Prosperity, began running ads in a handful of congressional Republicans’ districts, charging that they are caving on core principles.
“I thought they were elected to stop all these special handouts,” one woman says in the commercial running in Rep. Mike Kelly’s Pennsylvania district.
On Monday, Mr. Kelly said he has reconsidered and is withdrawing his sponsorship, joining four other Republicans who have pulled their names.
“The American people are increasingly calling for a more fair and simplified tax code,” Mr. Kelly said. “While H.R. 1380 works to support the development of natural gas, a cause I wholeheartedly believe in, I dont want to add to an already complex tax code.”
Mr. Sullivan, the bill’s sponsor, said he’s the only one offering a proactive solution for American energy production.
“You can’t claim to be for energy security while leading the opposition to the plan that achieves it,” said his spokesman, Vaughn Jennings. “By offering no energy plan of their own, opponents are supporting a status quo that puts OPEC dictators ahead of American taxpayers.”
The fact that both fights are over energy is not surprising. With gasoline prices averaging near $4 a gallon, lawmakers are divided on whether more government aid helps consumers or helps energy businesses.
But for the Republicans, the battle is over competing principles, and the ethanol fight in particular pits some of the conservative movement’s biggest players against each other.
On one side is Grover Norquist, president of Americans for Tax Reform, who runs the group’s influential lower-taxes pledge, and who said eliminating the ethanol tax credit would violate that. He’s been sparring with Mr. Coburn for months, saying that if taxes are raised in one area, they must be lowered somewhere else.
“This is all about raising taxes. This is nothing about corporate welfare and it’s nothing about ethanol,” he said. “If it’s about ethanol, then what Coburn would do is introduce a bill to remove the ethanol mandate. His bill doesn’t do that.”
On the other side is the Club for Growth, whose president, former Rep. Chris Chocola, said when they are picking which candidates to back, one key question is whether they will oppose ethanol subsidies.
“How can we ask every candidate, and grade them on their answer, and when it finally comes up for a vote, not be for it? We view this as an elimination of a market-distorting subsidy,” he said.
Both groups, though, agreed with another amendment that Sen. Jim DeMint, South Carolina Republican, hopes to piggyback onto Mr. Coburn’s legislation. It would eliminate the renewable fuels mandate, as well as cut the estate tax.